Health Committee on March 19th, 2013

[The Chair, Conservative, Joy Smith]

Good afternoon, ladies and gentlemen.

We have a very interesting committee meeting today. For the first time in quite a while, we're actually going to have a teleconference, starting with Dr. Michael Rachlis. We also have with us Dr. Marc-André Gagnon, assistant professor at the School of Public Policy and Administration at Carleton University, and Steve Morgan, from the Centre for Health Services and Policy Research at the University of British Columbia.

Dr. Michael Rachlis is here as an individual.

Can you hear me, Dr. Rachlis?

[Dr. Michael Rachlis, As an Individual]

I can.

[The Chair, Conservative, Joy Smith]

You can, great.

You have 10 minutes to give your presentation and then we have two other presenters.

You know what they told me? They told me that having a telephone conference is somewhat like the voice of God, and it's a bit like that. We can hear you from above, somewhere. This is a big responsibility.

[Dr. Michael Rachlis]

I'm not as tall as I may sound.

[The Chair, Conservative, Joy Smith]

You do have 10 minutes and I will be ending it at that point, so please keep an eye out for that. We eagerly look forward to what you have to say.

Please begin.

[Dr. Michael Rachlis]

Well, thank you very much. I'm very pleased to be asked to address the committee.

I'm going to be addressing it from a particular perspective, as a physician who did practise clinical medicine for about 20 years all told, but not for most of the last 15 years. Now I mainly do consulting work as a public health physician for provincial government health authorities and health organizations, primarily around health care policy.

I'm certainly happy to be sharing this time with Marc-André and Steven, who can both address a very important issue around pharmaceutical policy. I will hardly touch on that.

I'm mainly going to quickly talk about the arguments around the sustainability of our health care system, which go to the newspaper headlines, and the kind political pressures that the health care system is feeling these days.

Then I will try to make some arguments about the need for best practices, to fix a lot of the—

[The Chair, Conservative, Joy Smith]

Excuse me Dr. Rachlis, but you know that our topic is technological innovation, so if you could weave that into your presentation, it would be relevant.

[Dr. Michael Rachlis]

Yes, and I will close with what the federal government can do, which I think is in the way of technology, important technology.

First of all, I'll talk about the key arguments around our health care system these days. I think the way technology veers into it is that it will save our system in terms of costs. Alternatively, there are concerns that new technology in health care tends to raise costs.

Currently I think people believe that health care costs are considerably out of control, and that there is a threat, with the aging of the population, that things will be even much worse.

As well, quite frequently in the public debate, which I'm privileged at times to be part of, the main alternatives being put out there are that there are no alternatives other than to cut some real services or to use more private-care finance.

This is where I think some of the new ways of delivering care and new ways of thinking about that and what we need to support these new methods of delivery come in. There is quite an argument about whether our system can be made more efficient.

Finally, there tends to be the argument that we need a so-called adult conversation, which is primarily used, I think, as a euphemism to reduce our expectations and make us see the need for alternative arrangements, particularly financial ones.

I've taken about a minute and a half to describe that argument, but usually it only takes 15 seconds in a sound bite, and that's the main theme that's driving our health care debate. On the other hand, as I've suggested to you, I think there is considerable evidence to the contrary on most of those points.

First of all, health care costs are not wildly out of control. They did jump to a new peak in 2009-10, to almost 12% of GDP overall, but that was largely due to a major recession and fall in the economy. Health care costs in those years in fact went up considerably less than the average for the previous ten years.

In fact, now it's predicted that over the past two years.... We just have estimates at this point, but it will likely be in the foreseeable future, even with economic growth, only about 3.5% in nominal terms. We're going to get a fall in health care costs against our gross domestic product growth, and therefore health as a share of our economy will go down and our health care system will be, by that definition, more sustainable.

This is particularly true of public sector costs, which in fact now are about 8% or 9% above the previous peak in 1992. They've been coming down for the last few years. It's private costs and in particular those related to pharmaceuticals, which I know we'll touch on later, that have gone up. Private sector costs have gone up 50% in relative terms over their previous peak in 1992.

Overall, if you look internationally, if you compare apples to apples and oranges to oranges, and if you compare the right years—because you can't compare, for example, as the OECD did, Canada in the recession year 2009 to other countries in the pre-recession year of 2007 or 2008. That report, which got a lot of play, was fatally flawed because they didn't take that into account.

When you look at overall health care spending as a share of provincial government spending, it has fallen in the last three to four years from about 40% overall in Canada to less than 38%. To the extent that Canadian health care spending is rising as a share of government spending, it's also due to the fact that government program spending in Canada has declined fairly sharply over the last 20 years.

Internationally, as I said, we are roughly comparable to others. We're a little bit less than what France and Germany spend, and a little bit more than what is spent in countries like Belgium, Austria, Finland, which have comparable health systems.

What's really different is that Canada, like these other countries, is at around 10% to 12% of GDP. Health care for Canada is estimated to be at about 11.5% this year. The United States is at nearly 18%.

Another issue is around aging of the population, which I think is seen as another area where technology may have some solutions and also some threats.

I want to make the point that it's been well known for over 25 years. Some research that I did a couple of years ago with Hugh Mackenzie , a Toronto-based economist, confirms what other people have shown for many years. Namely, the annual impact of aging on health care costs for the next 25 years will be about 1% per year. This is in the context of health budgets growing at 2% to 3% now, and 5% to 7% on average from the late nineties to about 2008.

I always like to quote Bill Dalziel, an Ottawa geriatrician, on the aging population:

It is not the aging of our population that threatens to precipitate a...crisis in health care, but a failure to examine and make appropriate changes to our health care system, especially patterns of utilization.

Canada really does have remarkably archaic processes of care, like the fact we don't provide care out of hospitals. According to the Commonwealth Fund, an excellent, not-for-profit, non-partisan organization in New York City, Canadians, among 11 countries surveyed, are the most likely to say that they can't get care in their family doctor's office the same day but have to go to the emergency room. We also have the highest use of emergency rooms of these 11 countries. And we're the second longest in wait times to see a specialist.

This is often seen as a lack of money, or as a consequence of our not having a private system. In fact, it's due to archaic processes. This was nicely shown in a study in Ontario a couple of years ago, which followed patients who had seen spinal surgeons in Ontario. They might have waited a year to see them. It turned out that only 10% of patients referred to a spinal surgeon actually went on to have surgery in the following 18 months. These patients were waiting maybe a year to see a spinal surgeon. But if they're not going on to surgery, they should actually see a rehabilitation medicine specialist, a physiotherapist, or perhaps a multi-disciplinary team, including people like social workers. That's just one example of our many inefficient models of care.

More efficient models of care use electronic health records. When we take a look at the way we deliver services, we find that less than 5% of family practices are offering same-day services. At a large medical group in Cambridge, Ontario, the Grandview Medical Centre, Dr. Janet Samolczyk is now offering her patients the opportunity to book whenever they want to see her. In the U.K., the goal is that people will be able to electronically book their own appointments completely by 2015. Even without more doctors, but with doctors better integrated with nurses and other health professionals and using electronic systems, we could be more efficient.

[The Chair, Conservative, Joy Smith]

Doctor Rachlis, you only have about another minute left.

[Dr. Michael Rachlis]

Okay.

Most people who study this part of our system would say that most waits for family doctors in most parts of this country—and also most waits for specialists and ambulatory care—are not necessarily because of a lack of resources or the lack of a private system. These waits are caused by archaic processes of care. I'm happy to send the committee some more information on that. I would also be happy to talk about some of the community care programs that don't involve professionals. There are off-the-shelf programs waiting to be introduced that could reduce waits—

[The Chair, Conservative, Joy Smith]

Okay, thank you so much. I really appreciate your presentation.

[Dr. Michael Rachlis]

Can I have 30 seconds more?

[The Chair, Conservative, Joy Smith]

It has to be 30 seconds or I will cut you off.

[Dr. Michael Rachlis]

Okay.

Finally, what can the federal government do? The federal government's already involved with health care in its responsibility for aboriginal health and public health. The minimum it could do would be to provide some structured support for the quality improvement activities that need to happen. The provinces can't do this on their own, and I think we're admitting this. I would love to go further, and I'm happy to discuss with the committee—

[The Chair, Conservative, Joy Smith]

Thank you very much for your presentation, Doctor.

We'll now go to Dr. Gagnon. I understand you have a PowerPoint presentation, Doctor.

[Dr. Marc-André Gagnon, Assistant Professor, School of Public Policy and Administration, Carleton University, As an Individual]

Yes, and I think it was distributed to everyone.

[The Chair, Conservative, Joy Smith]

Yes.

[Dr. Michael Rachlis]

I'd be happy if somebody could send it to me. Thank you.

[The Chair, Conservative, Joy Smith]

Everything will be sent to you, Doctor. We'll now listen to Dr. Gagnon, and we have another presenter, and then we'll go to Qs and As.

Dr. Gagnon.

[Dr. Marc-André Gagnon]

Thank you very much.

With respect to my presentation, I'd just like to warn you that I found out I'd been invited to appear before the committee just last week. I had to submit my slides for translation the next day, so I've recycled a presentation I gave last month to McGill University's Faculty of Law for their Intellectual Property Week.

I am reusing that presentation, and since it was originally done in English, I am going to speak in English. My apologies to the francophones.

I'll discuss the Canadian pharmaceutical sector from the innovation economy to corporate welfare. Basically, I'm going to focus on the first two points, the evolution of the Canadian pharmaceutical sector and then the cost and benefits of innovation policy in Canada.

There's a bit of a “done it” narrative, which, in fact, is mostly true. Before 1987, before the implementation of the new patent regime under the Mulroney government, the Canadian pharmaceutical sector focused mostly on generics. Then there were the negotiations to implement a new patent law, but at the same time negotiating conditions, meaning that if we extended privileges to drug companies in order to increase research and development, these were the conditions that we would impose. Basically we were asking for a 10% ratio of R and D to sales. At the time, the Patented Medicine Prices Review Board was created as a watchdog to make sure that this deal was respected.

What is wrong with this narrative? It hasn't been true since 2000 or 2001. This R and D-to-sales ratio is one of the most interesting indicators showing the intensity of research and development in the pharmaceutical sector. It's basically the proportion of sales that is being reinvested in research and development. We see that after implementation of the new patent law, it was really successful. There was an important increase in the R and D-to-sales ratio. Then things started to decline, and we did not enforce the 10% R and D-to-sales ratio. In fact, now the situation is worse than when we implemented the system in 1988, worse than when we just changed the patent law at the time.

Now, we would like to compare ourselves to leaders in terms of pharmaceutical innovation and R and D, such as France, Germany, the United Kingdom, but if we compare this R and D-to-sales ratio, we more comparable to Cyprus and Romania, in fact.

If you look at the evolution of revenues versus investment in research and development in the pharmaceutical sector, there's been a strong increase in the evolution of revenues. Sales are going up. This sector is very profitable; it's making more and more money in Canada. But if you look at it in terms of how that translates into more research and development, well, R and D has been stagnating, and in fact declining in the last years.

So providing more money, putting more money into this sector, giving it more privileges in order to get some R and D, is not how things work. This is not Canada. These are the 10 largest pharmaceutical companies appearing on Fortune 500, as compared to dominant companies in other industrial sectors. What we have seen since the mid-1980s is a strong differential increase in the rate of profit of drug companies. Overall, this sector remains a very profitable sector when compared to other industrial sectors.

What does the fact that the sector is profitable mean in terms of R and D, in terms of innovation? Looking at the cost structure over time, or its evolution from the 1970s to 2006, we see that there has been an important decrease in manufacturing and a bit of an increase in terms of research and development, which reflects the importance of tax credits provided in the 1980s for R and D investment. What we see, in fact, is a major shift or surge in marketing and administrative expenses.

If you look, for example, at Canada—this is a bit dated, but it represents well the proportion of employment in the sector—only 17% of employment in the pharmaceutical sector is R and D for Rx and D members, and the 3% is for distribution, marketing, and sales, or mostly sales reps.

What does that mean in terms of innovation? Well, it's very difficult to measure therapeutic innovation. One measure that is sometimes used, which I don't really like, is the global introduction of new molecular entities. Well, it's going down, but this is normal. In the 1960s you could enter anything on the market, for example, thalidomide for pregnant women, and thank God things have changed since then.

But the question is, even if there are fewer drugs on the market, does that mean they are better drugs that represent greater therapeutic advances? There's a fantastic French medical journal called Prescrire, and every year they assess every new drug that enters the market. They look at whether it represents a therapeutic advance or not compared to existing drugs. The blue section is the section representing positive therapeutic value. Those with neutral therapeutic value—the bulk—are shown in red, basically the me-too drugs that do not bring any therapeutic advantage as compared to the already existing drugs. And the negative therapeutic value is the drugs where the harms dwarf the benefits, drugs like Vioxx or Avandia, that according to Prescrire simply shouldn't be on the market. So for Prescrire, it's not clear if we have an improvement or a regression of the pharmacopoeia.

Now, should Canada provide more generous policy for its pharmaceutical sector? In order to answer this question it's very important to understand what we are providing right now. We have the patent system, yes, but over that we also have a series of innovation policies for that sector. There are tax credits for R and D, there's the way we price patented drugs in Canada. We had a 15-year rule in Quebec and we replaced it with more generous tax credits in Quebec. These are numbers for 2011. We also had some direct subsidies.

Going through this very rapidly—this is based on a report I wrote for Health Canada—if you look at tax credits, Rx and D members say they receive 48% of R and D costs back in tax credits. That represents something like $461 million in 2011.

In terms of pricing policy, we have a weird system for pricing patented drugs in Canada. Basically we look at the median of seven countries, including the four most expensive countries in the world. So Canada has a system where we're always aiming to be the world's fourth most expensive country. Now, if we compare ourselves with European countries such as France or the United Kingdom, for example, we pay 20% more for our patented drugs in Canada than they do in these countries. There's a lot of discussion right now, for example during the CETA negotiations, that Canada should be closer to the European system for its patent system. Well, if you want to be equivalent to Europe, basically start by reducing the cost of your patented drugs by at least 15%.

So if we reorganize pricing policy to be more at par with what is happening in Europe, we could easily save something like $2 billion per year in additional costs. These are the additional costs we're paying right now for our patented drugs.

In terms of the 15-year rule in Quebec, in 2011 the cost was $193 million. Direct subsidies were between $57 million and $75 million in Ontario and Quebec. If we sum all this up, we have tax subsidies, $461 million, and $2.2 billion in different types of subsidies due to the way we price our drugs, direct subsidies, and the 15-year rule.

Now, if we consider that the pharmaceutical R and D in the brand name sector in Canada was $960 million in 2011, and the tax credits were approximately $461 million, it means that the total private spending in R and D, net of tax credits in Canada, was $499 million. So Canadians paid at least $2.2 billion in public financial support in order to generate $499 million in private R and D expenditure, net of tax credits.

This is absolute nonsense. I am a fiscal conservative. I want to get bang for my public buck, and I can't wait for somebody at Industry Canada to wake up and start doing some cost-benefit analysis, because this is pure nonsense here.

I'll skip the part on CETA.

I would like to finish with some numbers on the funding for R and D in the health field.

Now we have an innovation system that is—

[The Chair, Conservative, Joy Smith]

I just want to tell you that you have one more minute.

[Dr. Marc-André Gagnon]

Fantastic. That is all I need.

We have an innovation system that is broken, but we still have the possibility of transforming the financial incentives for innovation. Instead of just plowing more money in the current system, we need to rethink the way we use that public money right now in order to reorient the research niche, which could be made more promising in terms of innovative therapeutics.

For example, public research is so important right now. We always try to articulate public research with commercial needs. Right now the business model for commercial needs is still focusing on me-too drugs that represent no therapeutic—

[The Chair, Conservative, Joy Smith]

Your time is up, so could you wrap up, Doctor.

[Dr. Marc-André Gagnon]

If you look at the funding for R and D in the health field, not just pharmaceutical health field in general and you take into account tax credits, basically business expenditures in R and D represent only 19% of the total spending.

I'd really like to finish with this last slide. It doesn't appear any more, but it said that somebody has to do something, and it's incredibly pathetic that it has to be us.

[The Chair, Conservative, Joy Smith]

Well, we certainly understood that. Thank you so much.

Now we'll go to Dr. Steven Morgan, associate professor at the Centre for Health Services and Policy Research.

You will have to keep your eye on my signals, Dr. Morgan. You have 10 minutes. We look forward to hearing what you have to say.